Do active managers really protect your downside?

When you watch a magic act, it’s fun to be fooled. Even though we know it’s just a sleight of hand, it’s still entertaining when that torn-up card reappears out of nowhere.

Unfortunately, it’s not nearly as fun to invest in ordinary index funds, staying the course in pursuit of the expected returns a well-structured portfolio has historically delivered. Maybe that’s why it’s so tempting to fall for an active advisor’s contention that he – or she – is one of the magical few who can protect you during down markets, whisking your money out of harm’s way before the fall and, wonder of wonders, reanimating your stake once the coast is clear.

In today’s Common Sense Investing, let’s take a closer look at what’s really up those active managers’ sleeves, and why I favor index fund investing, where what you see is what you can expect to get.